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Exam 12: Financial Statement Analysis

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Question 51

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If an item meets one but not both criteria for extraordinary item treatment,it is correctly excluded from extraordinary items and included with other revenue and expenses.

A) True
B) False

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Question 52

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Using horizontal analysis,if the base year is negative and the following year is positive,the percentage change is just as useful as if the base year and the following year were both positive.

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B) False

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Question 53

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Excerpts from TPX Company's December 31, 2013 and 2012, financial statements are presented below: $\begin{array}{lrr}&2013&2012\\\text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\text { Inventory } & 84,000 & 70,000 \\\text { Net sales } & 400,000 & 372,000 \\\text { Cost of goods sold } & 254,000 & 216,000 \\\text { Total assets } & 850,000 & 810,000 \\\text { Total stockholders' equity } & 500,000 & 450,000 \\\text { Net income } & 75,000 & 56,000\end{array}$ -TPX Company's 2013 receivables turnover ratio is:

The following income statement and balance sheets for Laser World are provided: $\begin{array} { | c | }\hline\text { Laser World } \\\text { Income Statement }\\\text { For the year-ended December 31, 2012 }\\ \hline { \begin{array} {lr } \text { Sales revenue } & \$ 2,200,000 \\\text { Cost of goods sold } & 1,500,000 \\\text { Gross profit } & 700,000\\\text { Expenses: }\\\text { Operating expenses } & 350,000 \\\text { Depreciation expense } & 70,000 \\\text { Loss on sale of land } & 5,000 \\\text { Interest expense } & 25,000 \\\text { Income tax expense } & 60,000\\\text { Total expenses }&510,000\\\text { Net income }&\$190,000\\\end{array} } \\\hline\end{array}$ Assuming that all sales were on account,calculate the following risk ratios for 2012: $\begin{array}{ll}\text { 1. Receivables turnover ratio } & \text { 5. Current ratio } \\\text { 2. Average collection period } & \text { 6. Acid-test ratio } \\\text { 3. Inventory turnover ratio } & \text { 7. Debt to equity ratio } \\\text { 4. Average days in inventory } & \text { 8. Times interest earned ratio }\end{array}$

The current ratio is:

When using vertical analysis,we express balance sheet accounts as a percentage of:

A discontinued operation is the sale or disposal of any long-term asset.

BC Training reports sales revenue of $2,200,000.Average inventory during the year was $200,000.The inventory turnover ratio for the year is 8.0.What amount of gross profit would the company report in its income statement? $\begin{array}{|l|c|l|}\hline \text { Inventory turnover ratio } & \frac{\text { COGS* }}{\$ 200,000} & =8.0 \text { times } \\\hline\end{array}$ *COGS = $200,000 x 8.0 = $1,600,000.

Barry's BBQ had sales revenue for the year of $200 million and net income of $20 million.Total assets were $70 million at the beginning of the year,and $80 million at the end of the year.Calculate Barry's return on assets,profit margin,and asset turnover ratios.

Popson Inc.incurred a material loss which was not unusual in character,but was clearly an infrequent occurrence.This loss should be reported as:

Aggressive accounting practices result in reporting higher income,higher assets,and lower liabilities.

Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The asset turnover is:

Stealth Company's 2013 profit margin is:

Assuming a current ratio of 1.0,how will the purchase of inventory with cash affect the ratio?

Perform a horizontal analysis on the following information providing both the dollar amount and percentage change: $\begin{array}{lrr}&2013&2012\\\text { Cash } & \$ 500,000 & \$ 200,000 \\\text { Accounts receivable } & 900,000 & 800,000 \\\text { Inventory } & 700,000 & 500,000 \\\text { Long-term assets } & 2.200 .000 & 2.500 .000\\\text { Total assets }&\$4,300,000&\$4,000,000\\\end{array}$

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75,how will the purchase of inventory with cash affect each ratio?

Assume a company's sales are $1.6 million in 2011,$1.8 million in 2012,and $1.7 million in 2013.What is the percentage change from 2011 to 2012? What is the percentage change from 2012 to 2013? Be sure to indicate whether the percentage change is an increase or a decrease.

We use vertical analysis for income statement accounts,but not balance sheet accounts.

The average collection period converts the receivables turnover ratio into days.

Which of the following is not a solvency ratio?